The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 received Royal Assent on 26 February 2024. Several changes have already come into effect, with the remaining changes slated to commence later this year and in 2025. 

Here are some things you may need to consider if you are an employer:

New casual employee definition came into effect on 26 August 2024

A new definition of ‘casual employee’ has been introduced to the Fair Work Act. According to The Fair Work Ombudsman, under this updated definition, a person can only be classified as a casual employee if:

• the employment relationship has no firm advance commitment to ongoing work, taking into account a number of factors, including the real substance, practical reality, and true nature of the employment relationship, and;
• they’re entitled to a casual loading or specific casual pay rate under an award, registered agreement, or employment contract.

The changes mean that there is no single determinative factor e.g., what the employment contract says, and the focus is on the nature of the employment arrangement i.e., post contractual conduct.

What is a firm advance commitment?

Whether there is a firm advance commitment needs to be assessed on the “real substance, practical reality and true nature” of the employment relationship.

In essence, this involves several factors:

1. Whether the employer is able to offer or not offer work
2. Whether the employee is able to accept or reject work
3. How likely it is that work will be available in the future (based on the nature of the business)
4. Whether the employer has full-time and/or part-time employees who are performing similar work
5. Whether there is a regular pattern of work, for example, consistent weekly hours or shifts.

The above isn't a full list and other factors may apply.

When determining if there is a firm commitment to ongoing, indefinite work, all these factors should be considered together. No single factor is conclusive on its own, and not all factors need to be present for an employee to be classified as casual.

Employee choice

Starting from August 26, 2024, casual employees will be allowed to request a conversion to permanent employment after 6 months of work, instead of the previous 12 months. For small business employers, this right will take effect on February 26, 2025, allowing casual employees to request conversion after 12 months.

Once a request is made, employers are required to respond in writing within 21 days. Before issuing a response, the employer must consult with the employee.

If the employer agrees to the conversion, they must provide a written response detailing when the change will take effect, including whether the employee will become part-time or full-time and what their new working hours will be.

If the employer refuses the request, they must provide a written explanation with reasons for the refusal. The employer can reject the request if:

(a) The employee’s current employment still qualifies as casual under the new definition, and

(b) There are fair and reasonable operational reasons, such as:

• Significant changes would be necessary for the business,
• It would have a major impact on the business,
• Substantial adjustments to the employee’s conditions would be needed to comply with rules in an award or agreement,
• Converting to permanent employment would prevent the employer from following a legal recruitment or selection process required by law.

It is also important to note that employers are not obligated to provide back pay for any entitlements that employees would gain by moving to permanent employment.

New Casual Definition: Accounting and Financial Implications for Small to Medium Business Owners

1. Increased labour costs

As more casual employees transition to permanent status, your business may face higher expenses related to leave entitlements, notice periods, and redundancy pay. This could have a notable impact on overall labour costs, requiring you to reassess your employment strategies and budget allocations.

2. Payroll system updates

With the changes in casual employment classification, you may need to update their payroll systems to accurately reflect the new definitions. This includes tracking employees’ eligibility for conversion requests and ensuring compliance with the updated rules. System upgrades and adjustments may be necessary to manage these changes effectively.

3. Potential back pay liability

Although employers are not required to provide back pay for entitlements when casual employees convert to permanent status, there is a potential risk of claims if it is determined that employees were misclassified as casuals. Businesses should be aware of this possibility and may need to prepare for potential legal challenges related to back pay.

4. Legal and HR advice

To ensure compliance with the new laws surrounding casual employment and the right to disconnect, you may need to seek legal or human resources advice to interpret the changes accurately and implement the necessary procedures to avoid legal pitfalls.

5. Training costs

Implementing the new rules may require staff training to ensure that all employees understand the updated processes and their responsibilities under the new regulations. This training could be essential to maintaining compliance and minimising disruptions to business operations.

6. Record keeping

Improved record-keeping practices may be required, especially when it comes to tracking casual employees’ status and conversion requests. It is recommended that you maintain detailed records to demonstrate compliance with the new employment laws, which could involve additional administrative costs.

7. Budgeting

With potential increases in labour costs and compliance expenses, you may need to reassess your budgeting processes. This includes factoring in higher costs associated with permanent employee entitlements and the potential need for system upgrades or legal consultations.

8. Cash flow management

The anticipated rise in ongoing employment costs may necessitate adjustments to your cash flow forecasts. It’s important to plan for these changes to ensure you maintain sufficient liquidity to cover the increased expenses without disrupting operations.

9. Pricing strategy

To offset the higher costs associated with these employment reforms, some businesses may need to review and adjust their pricing strategies. This means you may need to increase prices to maintain profit margins, particularly if labour costs rise significantly.

10. Employee provisions

As more employees are classified as permanent, there may be an increase in provisions for employee entitlements on your balance sheet. This will need to be accounted for in your financial statements, which may impact your business's overall financial position.

11. Strategic planning

It may be worth meeting with your accountant and/or financial advisor to assess the specific impacts of these reforms on your operations. Developing strategies to manage the financial implications of these regulatory changes will be essential for maintaining stability and ensuring long-term success.

The right to disconnect came into effect on 26 August 2024

Starting August 26, 2024, for non-small business employers, and August 26, 2025, for small business employers, eligible employees will have a new "right to disconnect" outside of work hours. This right allows employees to refuse contact from their employer or third parties outside their designated working hours, unless their refusal is deemed unreasonable.

Under this right, employees can decline to monitor, read, or respond to any contact made by their employer or third parties during their personal time. This also applies to any attempts at contact outside of their working hours.

To determine if an employee's refusal is unreasonable, several factors must be considered:

• The reason for the contact.
• The method and level of disruption caused by the contact.
• The employee's compensation for being available during the contact period or for working additional hours beyond their normal schedule.
• The employee’s role within the business and their level of responsibility.
• The employee's personal circumstances, including any family or caregiving responsibilities.

Other relevant factors may also be taken into account.

However, it will be considered unreasonable for an employee to refuse to read, monitor, or respond to contact if such communication is legally required.

Right to Disconnect: Accounting and Financial Implications for Small to Medium Business Owners

1. Overtime costs

The enforcement of the right to disconnect—where employees cannot be contacted outside of their designated work hours—may lead to increased overtime costs for businesses. If urgent tasks arise that cannot be deferred until the next workday, you may need to pay employees overtime to address these issues, potentially increasing labour expenses.

2. Productivity impacts

Limiting the ability to contact employees outside of work hours may reduce flexibility, which might negatively affect productivity and responsiveness, particularly in industries where quick responses are vital. You may need to adjust workflows and client management strategies to mitigate these impacts.

Final Advice

As these significant changes to industrial laws come into effect, it’s essential for business and agribusiness owners to be proactive in assessing and adapting to the new requirements. The updated definitions of casual employment and the introduction of the right to disconnect are just the beginning. While navigating these changes may seem overwhelming, especially for those without dedicated HR professionals, there are steps you can take to minimise risk and ensure compliance.

First, consider seeking expert advice from legal and HR professionals to fully understand how these new laws apply to your business. This can help you avoid potential legal pitfalls and ensure that your employment practices are aligned with the latest regulations.

Second, it’s important to review and possibly update your payroll systems, record-keeping practices, and employee contracts to reflect the new definitions and rights. This might involve some upfront costs, but it’s a necessary investment to protect your business in the long run.

Finally, take a strategic approach to budgeting and cash flow management. With potential increases in labour costs and compliance expenses, planning ahead will be crucial to maintaining financial stability. This might also involve rethinking your pricing strategies to offset these new costs. Please get in touch with us if you have any questions or need support regarding this.

By staying informed and taking these proactive steps, you can better manage the transition and continue to operate your business effectively under the new regulatory environment.

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